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4 Growth Areas for Homebuilding in 2018

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A growing economy, supported by positive demographic trends, bodes well for the housing market in the new year, even as affordability challenges rise from an increase in prices and mortgage rates, according to realtor.com®’s 2018 Housing Forecast, released this week at the National Association of Home Builders’ International Builders’ Show in Orlando, Fla. Realtor.com®’s report highlighted the following key factors for builders in 2018, including:

1. Entry-level home construction marks a huge opportunity for growth.

Entry-level homes will continue to see price gains due to the larger pool of buyers who can afford them and the more limited homes available for sale in this price range.

2. Millennials are expected to gain market share in all home price segments.

With the largest cohort of millennials expected to turn 30 in 2020, their homeownership market share is expected to increase, realtor.com® notes. Millennials are aging into their peak family-forming years, and as such, their housing priorities will likely shift from proximity to urban life to more space and quality schools.

3. Southern markets are predicted to lead in sales growth.

Strong economies and healthy building levels will help drive Southern markets to beat out the national average home sales growth. “Builders who can adapt to regulatory hurdles in more challenging Western markets will find that prices still outperform national average growth in this region,” realtor.com® notes.

4. The tax bill is a game changer.

With the passing of the Tax Cuts and Jobs Act, the wealth and income effect of tax cuts will likely stimulate demand and increased production in the short term, but could lead to fewer sales and impact prices negatively over time in markets with higher prices and property taxes, realtor.com® analysts note. “Be wary of economic capacity constraints as inflation will kick in and the Fed will more aggressively increment interest rate increases,” they add.